Does budget transparency flatter to deceive? Evidence from Brazil

Nov 04, 2010

Does budget transparency flatter to deceive?

Arguing that the public has a right to information about government finances is fairly easy. One can use tax payer status, Bills of Rights etc to do this. But more and more questions are being asked about what budget transparency is good for. Researchers often find it hard to show a convincing link between budget transparency and other desirable outcomes like the Millennium Development Goals, appropriate budget allocations or even active legislatures and citizens. It is proving deceptively hard to show that budget transparency is “good for anything” except informing the public, and even that is not self-evident, as we shall see below.

Budget transparency and elections

To illustrate: In a well-functioning democracy, citizens hold politicians accountable for their performance. One of the preconditions is that voters have access to information that allows them to evaluate politician performance. By enabling citizens to monitor policy makers and hold corrupt politicians accountable, improved information would force governments to act in the best interest of the public.

But information about politicians’ performance seldom comes to all members of the public equally and directly. Instead, it is typically acquired and influenced by voters’ efforts, personal traits, characteristics of the community, or the level of political competition. Even worse, because information is often politically manipulated, it may be potentially discounted or even ignored by the public.

Hope on the horizon?

A 2008 article by Claudio Ferraz (Instituto de Pesquisa Econômica Aplicada) and Frederico Finan (University of California) provide solid data that the release of audit reports had a significant impact on mayors’ performance in elections. Here are some of their key findings:

Voters are sensitive to corruption and the amount of corruption: Municipalities where two audit violations associated with corruption were reported, the distribution of the audit report reduced the mayor’s likelihood of reelection by 7 percentage points The effect increases to almost 14 percentage points in municipalities with 3 violations. This shows that the electorate is not just sensitive to corruption, but also to the amount of corruption.

The media helps to amplify the effect: In those municipalities with local radio stations, the effect of disclosing corruption on the mayor’s likelihood of reelection was more severe. The distribution of the audit report decreased the likelihood of reelection by 11 percentage points among municipalities with one radio station and where two violations were reported.

Non-corrupt mayors were rewarded: Although radio exacerbates the audit effect when corruption is revealed , it also promotes non corrupt mayors. When corruption was not found in a municipality with local radio, the audit actually increased the likelihood that the mayor was reelected by 17 percentage points.

If it can be shown that budget transparency can get rid of poorly performing elected officials, it should not be a bridge too far to show that it also leads to better service delivery and ultimately better development outcomes.